Fighting bid rigging in public procurement

Bid rigging involves groups of firms conspiring to raise prices or lower the quality of the goods or services offered in public tenders. Although illegal, this anti-competitive practice continues to cost governments and taxpayers billions of dollars every year across OECD countries.

The 2012 Recommendation on Fighting Bid Rigging in Public Procurement

On 17 July 2012, the OECD Council adopted a Recommendation on Fighting Bid Rigging in Public Procurement that calls for governments to assess their public procurement laws and practices at all levels of government in order to promote more effective procurement and reduce the risk of bid rigging in public tenders.

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OECD Guidelines for Fighting Bid Rigging in Public Procurement

Bid rigging affects government procurement around the world and costs taxpayers billions of dollars. Mexico has partnered with the OECD to improve its procurement practices and step up its fight against bid rigging.

In January 2011, Mexico's Social Security Department signed a Memorandum of Understanding with the OECD and Mexico's Competition Commission, thus becoming the first public agency in Mexico (and in the world) to formally commit to adopt and implement the OECD Competition Committee’s Guidelines for Fighting Bid Rigging in Public Procurement.

Overview of the Guidelines

An effective procurement policy must be designed to obtain goods and services at the lowest possible price or, more generally, to achieve the best value for money. Vigorous competition among suppliers helps governments attain this objective. However, the formal rules that govern procurement, the way in which an auction is carried out and the design of the auction itself can all act to hinder competition and help promote or sustain bid-rigging conspiracies. Bid-rigging conspiracies waste taxpayers’ money and cause governments to pay far more than a fair price.

Bid rigging occurs in all types of industries and circumstances, and in all parts of the world. When bid rigging impacts public procurement, it has the potential to cause great harm. One reason for this is that public procurement is often a large part of a nation's economy. In many OECD countries, it amounts to 15 per cent of the gross domestic product and in most developing countries, it is substantially more than this. While bid rigging can emerge in both procurement and “ordinary” markets, it is critical that procurement regulations do not unwittingly facilitate collusive arrangements. The risks for competition in public procurement can be reduced by careful consideration of the various auction features and their impact on the likelihood of collusion. Designing auctions and procurement tenders to minimize collusion may contribute significantly to the fight against anti-competitive behaviour. A well-thought-through tender can reduce or even eliminate the ability of bidders to reach a collusive agreement.

The OECD Guidelines for Fighting Bid Rigging in Public Procurement help to identify:

Markets in which bid rigging is more likely to occur so that special precautions can be taken

Methods that maximise the number of bids

Best practices for tender specifications, requirements and award criteria

Procedures that inhibit communication among bidders

Suspicious pricing patterns, statements, documents and behaviour by firms, that procurement agents can use to detect bid rigging

The Guidelines provide the most comprehensive strategy available today for the design of tenders to hinder bid rigging and for the detection of bid rigging during the tender process. They can be applied in a decentralised manner across government at both national and local levels. The Guidelines can be used by public officials with no specialized economics or competition policy training. The Guidelines are available in a number of languages in order to encourage broad consideration of the methods outlined.